Trust, Ability‐to‐pay, and Charitable Giving

In the literature on privately provided public goods, altruism has been motivated by what contributions can accomplish (public goods philanthropy), by the pleasure of giving (warm-glow philanthropy), or by the desire to personally make a difference (impact philanthropy). We revisit these motives but allow for income heterogeneity and distrust in the institutional structures involved. We also model socially motivated philanthropy when income-heterogeneous donors take trust and ability-to-pay into account. We show key differences across the four models in terms of crowding out and in the effects of income distribution. In the socially motivated model, low-income donors may contribute more than high-income donors, giving theoretical foundation to the frequently observed "U-shaped" pattern of giving.